(Adds government's reply, PN statement)

The Nationalist Party said this morning that it expected the prime minister to 'come clean’ about his involvement in the government's buyback of the Cafe Premier premises.

Deputy leader Beppe Fenech Adami said it was scandalous and bizarre for a prime minister in a democratic country to involve himself in negotiations with a private company over the sale of a property, using the people’s taxes.

Nowhere else did a prime minister negotiate with a private company in a way which aimed at solving the company’s debts, he said.

He said the prime minister should come clean on his relationship with the company, Cities Entertainment, before and after the general election.

"Under normal circumstances, a Prime Minister faced with a report such as that by the Auditor-General yesterday would resign. But Joseph Muscat's yardstick is different from the one which he used before the general election," Dr Fenech Adami said.

He noted that Cafe’ Premier closed on the day after the general election and shortly after requested a meeting with the government. That resulted in an agreement for the government to buy back the property, which it actually owns and had leased on emphyteusis.

The Auditor General said yesterday that taxpayers forked out €210,000 in commissions as part of the €4.2 million paid by the government to buy back the Cafe Premier in Valletta.

The declaration by the NAO contradicted claims by Mario Camilleri, part-owner of the company which held the lease for Cafe Premier, that the payment was not a brokerage fee but part-settlement of a shareholder loan.

The NAO tabled in Parliament an investigation into the contract concluded last year, which saw the government re-acquire the lease of the iconic Cafe Premier.

The NAO said it had “notable reservations” regarding the manner by which the reacquisition was made.

“Although the amount paid by the government reflects a fair market value, this does not necessarily imply that value for money was achieved.”

Various shortcomings “detract from the prudence expected” when deciding to undertake disbursements of such magnitude, the NAO said. The investigation had been requested by the Opposition last year after Malta Today revealed how the government bailed out Cities Entertainment, the lease holders of Cafe Premier, to the tune of €4.2 million.

Mr Camilleri had insisted at the time that the €210,000 was part-settlement of a shareholder’s loan his company M&A Investments had advanced to keep Cities Entertainment afloat.

However, in a detailed analysis of this aspect of the deal the NAO insisted the payment of €210,000 to M&A Investments was “an intermediary payment, a brokerage fee or commission, equivalent to five per cent of the transfer value of €4.2 million”.

Reproducing excerpts of various exchanges with Mr Camilleri, the NAO report flags inconsistencies between his statements and a company board resolution that spoke clearly of a five per cent commission.

The NAO also pointed out that in one of the communications with Banif Bank indicating how the €4.2 million would be disbursed, the €210,000 was earmarked as a “commission on sale”. The bank was owed €2.5 million in loans.

The purchase of Cafe Premier was mired in controversy because it was deemed as a government bailout of Cities Entertainment that had run into financial difficulties.

Cafe Premier closed its doors on March 8, 2013 after racking up thousands of euros in rent and tax arrears. The premises, located underneath the National Library, were leased to Cities Entertainment in 1998 for 65 years.

The NAO found that the Government Property Department could have pursued court action to terminate the lease when rent arrears surpassed the threshold stipulated in the contract in April 2013.

However, the government opted to reach an out-of-court settlement to buy back the remaining leasehold. Court proceedings that had been initiated were dropped and the NAO was unable to establish the motivation for the court case withdrawal. The department’s legal section and the rents section presented “opposing views”.

Documenting the negotiations that took place between May 2013 and September of the same year, the NAO noted that Cities Entertainment had initially asked for €5,370,000. It eventually settled for €4,200,000. Negotiations for the government were conducted by architect John Sciberras, the Prime Minister’s advisor. The deal was spelt out in a Cabinet memorandum dated September 10, 2013. The contract was signed in January 2014.

A government-appointed architect had valued the property at €4.4-€4.5 million.

MDA CALLS FOR REFORM

The Malta Developers' Association in a statement this morning said  that in this case, the Lands Department did not act cautiously and meticulously, its characteristics with every other citizen.

"In these circumstances, the major lesson to be learnt from this episode is that there is an urgent need for a radical reform in the way the Lands Department operates. This reform should be aimed at making the department more efficient and transparent than it is at present and, in this way, it will ensure that everyone is treated in the same way using the same measure."

The MDA said the government should investigate the case further so that anyone responsible would be held accountable.

GOVERNMENT'S REPLY

The Opposition’s allegation that the Prime Minister had an agreement with the owners of Café Premier clearly showed that the Nationalist Party still believed that this administration acted like the previous one.

In a statement this evening, the government said that the Café Premier contract was public and open to scrutiny and the government welcomed such scrutiny.

In its statement, the government said it had been proactive and acted to collect from the owners a million euros which the previous administration had left pending. It also wanted a prime site in the capital city to be returned to the government and be put to public and productive use.

Previous administrations had been trying for years to get the money they were due from the owners.

In its first months, the government was presented with two solutions - to open a case against the owners and risk being unable to use the site for a number of years allowing it to dilapidate or to collect its money and pay the owners for the remainder of the emphyteusis to take back the site.

The government had never been afraid to take the necessary decisions in the best interest of the people and decided to take the site back and collect the monies due. This decision had also been approved by Cabinet.

The Prime Minister months ago had also asked the police to investigate allegations on commission paid and the police found that nothing illegal had been done.

The Auditor General also did not find anything illegal and in his report said that the value of the property reflected the market value.

Café Premier’s value was also confirmed by three experts, including a technical consultant at the Auditor General’s office, all of whom agreed that the value paid by the government was fair.

The AG’s suggestion that things could have been done better procedurally was accepted by the OPM, the government said.

PN STATEMENT

In a reply to the government’s statement, the PN said that a serious Prime Minister shouldered political responsibility when it was uncovered that he was directly involved in a scandal.

In his heart of hearts, the PN said, Dr Muscat knew he should never have involved himself in the negotiations.